Foreign Reg­u­la­tors Check on Health of In­dian Banks

Want them to be cap­i­tal-ready, spot early sig­nals of stress in loans books

The Economic Times - - Companies: Pursuit Of Profit - Su­gata.Ghosh @times­group.com

Mum­bai: Amid mount­ing bad loans and dip in prof­its, fi­nan­cial ser­vices reg­u­la­tors of sev­eral coun­tries where In­dian banks op­er­ate have sought as­sur­ance from bank man­age­ments about the readi­ness of par­ents, share­hold­ers to chip in cap­i­tal when re­quired.

Meet­ing se­nior of­fi­cials of lo­cal banks and the Re­serve Bank of In­dia, of­fi­cials of th­ese fi­nan­cial mar­ket author­i­ties em­pha­sised the need to spot early sig­nals of stress in loans books and make nec­es­sary pro­vi­sions be­fore it’s late. More than a dozen In­dian banks run branches abroad.

“Reg­u­la­tory bod­ies from UK, Hong Kong, China, UAE and other coun­tries held sep­a­rate meet­ings with large and mid-size banks this week to fig­ure out how they are placed to re­main well-cap­i­talised and treat the spe­cial men­tion as­sets,” a se­nior banker told ET.

The ex­er­cise is part of the meet­ing hosted by RBI under the sys­tem of ‘reg­u­la­tory col­lege’. Each bank is re­quired to make pre­sen­ta­tion be­fore reg­u­la­tors of mar­kets where they have branch op­er­a­tions; this is fol­lowed by joint dis­cus­sions. “Even though In­dian banks have lit­tle or no re­tail li­a­bil­ity in th­ese mar­kets, the re­cent de­cline in as­set qual­ity of In­dian lenders has un­der­stand­ably drawn the at­ten­tion of many reg­u­la­tors,” said an­other bank.

The reg­u­la­tory col­lege meets at a time In­dian banks are strug­gling to re­solve sticky loans with­out draw­ing the glare of cen­tral in­ves­tiga­tive and vig­i­lance agen­cies which, many bankers al­lege, have un­leashed a witch hunt to vin­di­cate po­lit­i­cal de­ci­sions. The ac­cel­er­ated pro­vi­sion­ing rule that was put in place by for­mer RBI gov­er­nor Raghu­ram Ra­jan would call for an ex­tra 25% pro­vi­sion­ing on well over .₹ 6

lakh crore loan by March 31, 2017.

The lurk­ing fear in the in­dus­try is that if man­age­ments of banks, RBI, and the fi­nance min­istry fail to cob­ble to­gether a rem­edy to deal with bad loans within the next few months, then banks will have to ar­range cap­i­tal to make ad­di­tional 15% pro­vi­sion­ing — over and above the 25% pro­vi­sion­ing — in the com­ing fi­nan­cial year. “The worry, par­tic­u­larly with re­gard to pub­lic sec­tor banks, is that they just don’t have the cap­i­tal for this,” said the head of a cor­po­rate credit of a large bank. The do­mes­tic banks which have over­seas pres­ence are SBI, BoB, PNB, ICICI, BoI, Axis, IDBI, HDFC, Ca­nara, Syn­di­cate, Uco, In­dian, and IoB.

One of the in­ten­tions of the reg­u­la­tory col­lege mech­a­nism is to fa­cil­i­tate mar­ket su­per­vi­sors to ex­change notes and min­imise reg­u­la­tory ar­bi­trage.

In­deed, the com­par­a­tively harsher rules in Sin­ga­pore had tempted some of In­dian banks to move cer­tain as­sets to their books in other busi­ness ju­ris­dic­tions. Some of the reg­u­la­tors had ear­lier ques­tioned the re­luc­tance of In­dian banks to lend to lo­cal busi­nesses – as most In­dian banks use foreign branches to ex­tend credit fa­cil­i­ties and ar­range ex­ter­nal com­mer­cial bor­row­ings (or dol­lar loans) for In­dian com­pa­nies, as well as in­vest in in­stru­ments like foreign cur­rency con­vert­ible bonds is­sued by cor­po­rates.

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